C:\Fakepath\17262final Old Sugg Paper June09 8

$: C:\Fakepath\17262final Old Sugg Paper June09 8$
The suggested answers for Indirect Taxes (Paper 8) are based on the provisions asamended by the Finance Act, 2008 and Notifications/Circulars issued up to 31.10.2008which are relevant for June 2009 examinations.

PAPER – 8 : INDIRECT TAXES

Answer to question nos. 1, 6 and 9 are compulsory. In addition thereto, answer any twoquestions from Part “A” and one question from Part “B”.

PART – A

Question 1

(a) Briefly explain the following with reference to the provisions of the Central Excise Act,1944 as amended by the Finance Act, 2008:

(i) Deposit of excise duty collected from the buyer.(ii) Payment of interest on pre-deposit made by an appellant under section 35FF.

(2×2=4 Marks)

(b) Explain the provisions of section 3A of the Central Excise Act, 1944 regarding dutypayable on the basis of capacity of production in respect of notified goods. (5 Marks)

(c) X Ltd. of Kanpur was receiving goods in semi-finished condition from its sister concernbased at Mumbai. After carrying out some operations, it cleared the goods at lower valuethan the landing cost of semi-finished goods received from the supplier. After verificationof company’s records, Revenue Department alleged that the value of the intermediategoods had been inflated by the supplier to pass on excess CENVAT credit and hence,Department wanted to disallow the excess credit so availed as per the provisions of rule14 of the CENVAT Credit Rules, 2004. Explain, whether the contention of theDepartment is correct, giving reference to decided case law, if any. (5 Marks)

(d) Discuss the validity or otherwise of the following statements giving reasons to supportyour answer:

(i) Erroneous claim made by the assessee earlier precludes him from subsequentlymaking a claim for correct classification.

(ii) Omission to give correct information can be construed as ‘suppression of facts’ forthe purpose of the proviso to section 11A of the Central Excise Act, 1944.

(2×3=6 Marks)Answer(a) (i) The scope of section 11D was expanded by inserting sub-section (1A) which

provides as follows:-

FINAL EXAMINATION : JUNE, 2009

60

Every person, who:- has collected any amount in excess of the duty assessed or determined and paid

on any excisable goods or has collected any amount as representing duty of excise on any excisable goods

which are wholly exempt or are chargeable to nil rate of duty;from any person in any manner, shall forthwith pay the amount so collected to thecredit of the Central Government.

(ii) New section 35FF provides that where an amount deposited by the appellant inpursuance of an order passed by the Commissioner (Appeals) or the AppellateTribunal (hereinafter referred to as the appellate authority), under the first proviso tosection 35F, is required to be refunded consequent upon the order of the appellateauthority and such amount is not refunded within three months from the date ofcommunication of such order to the adjudicating authority, unless the operation ofthe order of the appellate authority is stayed by a superior court or tribunal, thereshall be paid to the appellant interest at the rate specified in section 11BB after theexpiry of three months from the date of communication of the order of the appellateauthority, till the date of refund of such amount.

(b) Central Government, having regard to the nature of the process ofmanufacture/production of excisable goods of any specified description, the extent ofevasion of duty in regard to such goods or such other factors as may be relevant, canissue notification specifying that duty on such notified products will be levied andcollected on the basis of production capacity of the factory. In this connection, newsection 3A has been introduced under the Central Excise Act, 1944 by Finance Act, 2008giving the provisions for ascertaining the production capacity, with effect from 10-5-2008.It provides as follows:-(i) Capacity will be determined by an officer not below the rank of Assistant

Commissioner. Factors relevant to determine production capacity will be specifiedby rules framed by Central Government.

(ii) The annual capacity fixed will be deemed to be annual production of such goods bythe factory. If factory is not working for part of the year, annual production will becalculated on proportionate basis of the annual capacity of production. If factorsdetermining production capacity are changed during the year, annual capacity willbe re-determined on a proportionate basis having regard to such alteration ormodification.

(iii) The rate of duty payable based on production capacity will be notified by CentralGovernment in rules. If factory does not work for a continuous period of 15 days ormore in a month, duty calculated will be proportionately reduced, subject toprescribed conditions.


61

(iv) Provision of payment of duty on the basis of production capacity does not apply togoods produced or manufactured, by a 100% Export Oriented Undertaking (EOU)and brought to any other place in India.

(v) Even if duty on goods notified u/s 3A is payable as per rates notified if similar goodsare imported, CVD will be payable at the rate specified in Central Excise Tariff readwith any exemption notification.

(c) In CCE v. MDS Switchgear Ltd. 2008 (229) ELT 485, the Hon’ble Supreme Court heldthat CENVAT credit availed by the assessee was justified in this case.

CESTAT’s view which was up-held by the Apex Court was that if the Department was ofthe opinion that the value of the final product was depressed, then they should havecharged Kanpur unit with under- invoicing of their product, which had not been done inthis case. Valuation as given by the Mumbai unit was duly approved by the Departmentand the payment of duty was also accepted. The CENVAT Credit Rules, 2004 entitledthe recipient unit to avail the benefit of the duty paid by the supplier unit. A quantum ofduty already determined by the jurisdictional officers of supplier unit could not becontested by the officers in charge of recipient unit.

(d) (i) The statement is not valid. The question as to whether erroneous claim made bythe assessee earlier precludes him from subsequently making a claim for correctclassification was negatively answered by Rajasthan High Court in the case ofGuljag Industries Ltd. v. Union of India 2008 (224) ELT 38. In this case, theappellant-the manufacturer wrongly classified the storage tank, motor rails andplatforms manufactured by him under chapter heading 73.09 by taking it to be thestorage of general use. Later on, he claimed the classification under chapterheading 84.19 on the ground that storage tank concerned, was actively used formanufacturing activity of the plant and was an integral part of the manufacturingprocess, therefore ought to be classified under chapter heading 84.19. AdjudicatingAuthority contended that classification once opted by the manufacturer could not beallowed to be altered subsequently. The High Court approved the contention ofappellant that earlier claim to a particular classification by the manufacturer did notstop the assessee from claiming the correct classification under a different head bypointing out that the classification earlier claimed was erroneous.

(ii) The statement is not valid. The question as to whether omission to give correctinformation can be construed as ‘suppression of facts’ for the purpose of the provisoto section 11A of the Central Excise Act, 1944 was negatively answered bySupreme Court while deciding the case of Continental Foundation Joint Venture v.CCEx. 2007 (216) ELT 177. The Supreme Court observed that the expression“suppression” used in proviso to section 11A of the Central Excise Act, 1944 shouldbe construed strictly. Suppression means failure to disclose full information withintent to evade payment of duty. When the facts are known to both the parties,omission by one party to do what he might have done would not render itsuppression. The Apex Court held that mere omission to give correct information is


62

not suppression of facts unless it was deliberate to stop the payment of duty. TheApex Court further explained that an incorrect statement cannot be equated with awilful misstatement. There cannot be a non wilful suppression or misstatement of afact. Misstatement of fact must be wilful.

Question 2

(a) Assessee purchased duty paid M.S. tubes from its manufacturers and cut into requisitelength and were put into the swaging machine for undertaking swaging process wherebydies fitted in the machine imparted ‘folds’ to flat surface of M.S. tube/pipe. Department’sview is that ‘swaging process’ amounts to manufacturer whereas assessee denies.Discuss whether the Department’s contention is correct by referring to section 2(f) of theCentral Excise Act, 1944. You can take the help of decided case law, if any. (5 Marks)

(b) Briefly explain the provisions relating to re-entry of the goods cleared for export underbond but not actually exported, in the factory of manufacturer as per notification issuedunder rule 19 of the Central Excise Rules, 2002. (4 Marks)

(c) Raj & Co. furnishes the following expenditure incurred by them and wants you to find theassessable value for the purpose of paying excise duty on captive consumption.Determine the cost of production in terms of rule 8 of the Central Excise Valuation(Determination of Price of Excisable Goods) Rules, 2000 and as per CAS-4 (CostAccounting Standard):

(i) Direct material cost per unit inclusive of excise duty at 10% Rs.880(ii) Direct wages Rs.250(iii) Other direct expenses Rs.100(iv) Indirect materials Rs.75(v) Factory overheads Rs.200(vi) Administrative overhead (25% relating to production capacity) Rs.100(vii) Selling and distribution expenses Rs.150(viii) Quality control Rs.25(ix) Sale of scrap realized Rs.20(x) Actual profit margin 15%

(6 Marks)

Answer

(a) This problem is based on the case law Prachi Industries v. CCEx., Chandigarh 2008(225) ELT 16 (SC).

In this case, Department took the plea that swaging process amounted to manufacture andduty was payable on the goods manufactured by the appellant. However, the demand by theDepartment was not accepted. Consequently, the appeal was filed before the SupremeCourt.


63

The Apex Court held that by reading section 2(f) of the Central Excise Act, 1944, it was clearthat manufacture includes "any process incidental or ancillary to the completion of amanufactured product". In other words, incidental process must be an integral part ofmanufacture resulting into a new finished product which must be of a different physical shape,size and use. Moreover, the said process must impart a change of a lasting character to theoriginal product or raw material. Supreme Court observed that swaging was the processwhich imparted a change of a lasting character to the plane MS pipe or tube by use of dieswhich existed in the machine. After the process of swaging, the identity of the plane MS pipeor the tube underwent a change in terms of form, shape or use. Hence, Supreme Court heldthat swaging amounted to manufacture and thus, excise duty was payable by the assessee.

(b) The excisable goods cleared for export under bond or undertaking but not actuallyexported for any genuine reasons may be returned to the same factory provided:(i) such goods are returned to the factory within 6 months with original documents like

invoice and ARE-1.(ii) the assessee shall give intimation of re-entry of each consignment in Form D-3

within twenty four hours of such re-entry;(iii) such goods are to be stored separately at least for forty eight hours from the time

intimation is furnished to the Range Office or shorter period if verification is done bythe Superintendent of Central Excise or through Inspector in charge of factory,about the identity of such goods with reference to the invoice, ARE-1 and dailystock account in respect of 5% of intimations, within another 24 hours of receipt ofintimation.

(iv) the assessee shall record details of such goods in daily stock account and taken inthe stock in the factory.

(c) Computation of assessable value as per rule 8 of the Central Excise Valuation(Determination of Price of Excisable Goods) Rules, 2000 and CAS-4:-

S. No. Particulars Total costRs.

1 Material cost consumed–net of excise duty (Note-1) 8002 Direct wages 2503 Direct expenses 1004 Works overheads (75 +200) (Note-2) 2755 Quality control cost 256 Administration overheads (relating to production capacity) 257 Total (1 to 6) 1,475


64

8 Less: Credit for recoveries/scrap/by products/ miscellaneous income 209 Cost of production (8-9) 1,45510 Add: 10% as per rule 8 (Note-3) 14511 Assessable value 1,600Note:1. Material Consumed: Rs. 880-Rs. 80 (excise duty) =Rs. 8002. Indirect materials and factory overheads have been included in works overheads.3. Actual profit margin earned is not relevant for excise valuation as per rule 8 of the

Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Question 3(a) Is there any discretion under section 11AC of the Central Excise Act, 1944 to impose

penalty less than the amount equal to duty evaded? Briefly explain based on case law, ifany. (3 Marks)

(b) Explain eligibility of CENVAT credit in each of the following occurrences during the monthof January, 2008 for an assessee:(i) Assessee received a consignment of inputs on which excise duty paid was

Rs.12,000. The invoice is dated 10 th January, 2008. The transporters delivered thegoods on 1st February, 2008.

(ii) Inputs on which CENVAT credit availed earlier Rs.5,000, were sent to productioncentre and on its way, the inputs were completely damaged due to carelesshandling. Inputs have become unfit for use.

(iii) CENVAT credit of Rs.20,000 was taken on certain inputs. Due to long storage theyhave become unfit and were sold as scrap for Rs.5,000 and excise duty is 14.42%.

(3×2=6 Marks)(c) S & Co., a small scale unit, had cleared goods of the value of Rs.750 lakhs during the

financial year 2007-08. Records show that the following clearances were included in thetotal turnover of Rs.750 lakhs :

Rs. in lakhs

(i) Total exports during the year 200

(ii) Job work in terms of Notification No. 214/86 50

(iii) Job works in terms of Notification No. 83/94-CE 50

(iv) Clearance of excisable goods without payment of duty to a 100% E.O.U. 20

(v) Goods manufactured in rural area with others’ brand 100


65

Find out whether the unit is eligible to avail concession for the year 2008-09, underNotification No. 8/2003 dated 1st March, 2003, giving reasons for your answer. 30% of totalexports were to Nepal. (5 Marks)

Answer

(a) The Supreme Court in case of Union of India v. Dharmendra Textile Processors 2008(231) ELT 3 (SC) has held that there is no discretion to impose lower penalty undersection 11AC of the Central Excise Act, 1944. In notes to clause, while introducingsection 11AC, it has been mentioned that levy of penalty under the said section is amandatory penalty.

Earlier, similar view was taken by Bombay High Court, in case of C.C.E. & C.,Aurangabad v. Godavari Manar Sahakari Sakhar Karkhana Ltd. 2008 (228) ELT 172,wherein it pronounced that under section 11AC, there was no discretion vested with theauthority to impose any penalty different than the one prescribed by the said provision. Itwas evident that legislature had not fixed any upper or lower limit, but prescribed onlyone quantum for penalty which was equal to the duty intentionally evaded.

Hence, there is no discretion under section 11AC of the Central Excise Act, 1944 to imposepenalty less than the amount equal to duty evaded. The Court observed that the reason forsuch stiff and stringent provision was that since the penalty under section 11AC was a sort ofpenal provision, the said provision ought to be harsh and stringent.

(b) (i) The assessee is eligible for CENVAT credit in the month of February, 2008 and notin the month of January, 2008 because the inputs have been received only in themonth of February. Rule 4(1) of CENVAT Credit Rules, 2004 provides that theCENVAT credit in respect of inputs may be taken immediately on receipt of theinputs in the factory of the manufacturer or in the premises of the provider of outputservice. As the inputs in the problem have been received in February, 2008,CENVAT credit can be taken only in the month of February, 2008.

(ii) In this case, the inputs were issued from the stores to the production departmentbut got damaged due to careless handling on its way to production centre. It is aclear indication that the inputs are removed from the stores which is to be construedas if they were removed for use ‘in or in relation to manufacture’. Hence, there is noneed to reverse the CENVAT credit already availed.

(iii) In this case, since the inputs were subsequently sold as scrap, the assessee willhave to reverse CENVAT credit of Rs. 20,000 already taken on inputs. Since, crediton inputs is available only for inputs used in or in relation to manufacture of finalproducts, if the inputs are lost or destroyed in the store room, credit of duty paid onsuch inputs will not be available, as it cannot be said that they are used ‘in or inrelation to manufacture’.

(c) In order to claim the benefit of exemption under Notification No. 8/2003 – C.E. in thefinancial year 2008-09, the total turnover of the unit should not exceed Rs.400 lakh in the


66

preceding financial year 2007-08. For the purpose of computing the turnover of Rs. 400lakh:-(i) Export turnover has to be excluded. However, export to Nepal and Bhutan cannot

be excluded as these are treated as “clearance for home consumption”. Therefore,clearances worth Rs.140 lakh will be excluded while clearances worth Rs.60 lakhexported to Nepal shall remain included.

(ii) Job work under Notification No. 214/86-CE and under Notification No. 85/94-CEshall not to be included. Consequently, clearances worth Rs. 100 lakh are to beexcluded.

(iii) Clearance of excisable goods without payment of duty to EOU has to be excludedas it is considered as “deemed export”. Therefore, clearances worth Rs. 20 lakhhave to be deducted.

(iv) Goods manufactured in rural area with other’s brand name, the turnover which iscleared without payment of duty shall be included. Therefore, the clearances worthRs. 100 lakh shall not be excluded.

Therefore, for the year 2008-09, the turnover of S & Co. for claiming the SSI exemptionwill be:-

= Rs. 750 lakh – (140 + 20 + 100) lakh = Rs. 490 lakh. Hence, S & Co. will not be entitled toexemption under Notification No. 8/2003 dated 01.03.2003 in 2008-09.

Question 4

(a) Discuss with reference to the Central Excise Valuation (Determination of Price ofExcisable Goods) Rules, 2000, the following:

(i) Goods sold only through inter-connected undertaking

(ii) Valuation in case of job worker. (2×3=6 Marks)

(b) As per section 11B(2) of the Central Excise Act, 1944, refund shall be granted to theapplicant only in specified cases otherwise shall be credited to Consumer Welfare Fund.You are required to explain briefly such cases. (5 Marks)

(c) Rule 9(2) of the Central Excise Rules, 2002 provides for exemption from registration tospecified categories of persons. Explain briefly those categories. (4 Marks)

Answer(a) (i) Goods sold through inter-connected undertaking

If goods are sold only though inter-connected undertaking, the value shall bedetermined as per rule 10 of Central Excise Valuation (Determination of Price ofExcisable Goods) Rules, 2000 as follows:-(i) When the assessee so arranges that the excisable goods are not sold by him

except to or through an inter-connected undertaking, the value of goods shall


67

be the “transaction value” if:-(a) the buyer is not a holding or subsidiary of assessee, or(b) buyer and seller are relatives, or(c) buyer is a relative and a distributor of the assessee or a sub-distributor of

such distributor, or(d) buyer and seller are so associated that they have interest, directly or

indirectly, in the business of each other.(ii) In any other case, price will be “normal transaction value” of buyer to unrelated

person (as per rule 9 of the said rules).(ii) Valuation in case of job work

Where the goods are manufactured by a job worker on behalf of a person,provisions of rule 10A (a new rule inserted from 1-4-2007) of the Central ExciseValuation (Determination of Price of Excisable Goods) Rules, 2000 shall apply.Rule 10A provides that the value for payment of excise duty would be based on thesale value at which the principal manufacturer sells the goods to an unrelatedbuyer.

(b) Refund shall be granted by the Assistant Commissioner, on being satisfied that exciseduty and interest, if any, paid on such duty is refundable, to the applicant only in thefollowing cases:(i) rebate of duty of excise on excisable goods exported out of India or on excisable

materials used in the manufacture of goods which are exported out of India;(ii) unspent advance deposits lying in the applicant's account current maintained with

the Commissioner of Central Excise;(iii) refund of credit of duty paid on excisable goods used as inputs in accordance with

rules made, or any notification issued, under the Act;(iv) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if

he had not passed on the incidence of such duty to any other person;(v) duty of excise and interest, if any, paid on such duty borne by the buyer if he has

not passed on the incidence of such duty to any other person;(vi) the duty of excise and interest, if any, paid on such duty borne by any other such

class of applicants as the Central Government may, by Notification in the OfficialGazette, specify.In other cases, the Assistant Commissioner shall make an order for credit of amountrefundable to the "Consumer Welfare Fund".

(c) Central Board of Excise and Customs, as per the power given under section 9(2) of theCentral Excise Act, 1944, vide Notification No.36/2001-CE. (NT) dated 26.06.2001, hasexempted the following specified categories of persons from obtaining registration:


68

(i) Persons who manufacture the excisable goods, which are chargeable to nil rate ofduty or are fully exempt from duty by a notification subject to the declaration to bemade in a specified form.

(ii) Small scale units having the slab exemption based on value of clearances under anotification. However, they have to give the declaration when their clearances touchRs. 90 lakh.

(iii) In respect of final products falling under chapter 61 or 62, the job-worker need notget registered if the principal manufacturer undertakes to discharge the duty liability.

(iv) Persons manufacturing excisable goods by following the warehousing procedureunder the Customs Act, 1962 subject to certain prescribed conditions.

(v) The person who carries on whole sale trade or deals in excisable goods except firstand second stage dealer, as defined in the CENVAT Credit Rules, 2004.

(vi) A hundred percent Export Oriented Undertaking or a unit in EPZ or a unit in SEZlicensed or appointed; as the case may be under the Customs Act, 1962.

(vii) Persons who use excisable goods for any purpose other than the processing ormanufacture of goods availing benefit of concessional duty exemption notification.

(viii) Person who gets his goods manufactured on his account from any other personsubject to the conditions that the said person authorizes the person actuallymanufacturing or fabricating the said goods, to comply with all procedural formalitiesunder the Central Excise Act, 1944 and the rules made there under and to furnishinformation in order to enable the determination of value of the said goods.

Note: Any four points may be mentioned.

Question 5

(a) State the categories of cases that cannot be settled as per section 32E of the CentralExcise Act, 1944. (5 Marks)

(b) Write a brief note on the following with reference to the Central Excise Act, 1944:

(i) Tampering or altering MRP after removal(ii) Remission of duty on lost/or destroyed goods. (2×3=6 Marks)

(c) Under what circumstances, the appellant shall be entitled to produce before theCommissioner of Central Excise (Appeals) additional evidence as per rule 5 of theCentral Excise Appeal Rules, 2002? (4 Marks)

Answer

(a) As per section 32E(1) of the Central Excise Act, 1944, an application for settlement is notentertained by the Settlement Commission under the Central Excise Act, in the followingcircumstances:


69

(i) The applicant has not filed a return showing production, clearance and centralexcise duty paid in the prescribed manner.

(ii) The applicant has not received a show cause notice for recovery of duty issued bythe Central Excise Officer.

(iii) The additional amount of duty accepted by the applicant does not exceed Rs. 3lakh.

(iv) An application/case is pending with the Tribunal or Court.(v) Any excisable goods or books of account/documents are seized and 180 days have

not yet expired.(vi) Application pertains to interpretation of classification of excisable goods.(vii) The applicant, while filing the application, has not deposited the additional amount

of excise duty accepted by him along with interest due under section 11AB.Note: Any four points may be mentioned.

(b) (i) Tampering or altering MRP after removal ;Rule 5 of the Central Excise (Determination of Retail Sale Price of Excisable Goods)Rules, 2008 provides that where a manufacturer alters or tampers the retail saleprice declared on the package of goods after their removal from the place ofmanufacture, resulting into increase in the retail sale price, then such increasedretail sale price shall be taken as the retail sale price of all goods removed during aperiod of one month before and after the date of removal of such goods. However,where the manufacturer alters or tampers the declared retail sale price resulting intomore than one retail sale price available on such goods, then, the highest of suchretail sale price shall be taken as the retail sale price of all such goods.

(ii) Remission of duty on lost/destroyed goods.“Remission” means waiver or cancellation of excise duty legally payable. Rule 21 ofthe Central Excise Rules, 2002 provides that where it is shown to the satisfaction ofthe Commissioner that goods have been lost or destroyed by natural causes or byunavoidable accident or are claimed by the manufacturer as unfit for consumption orfor marketing, at any time before removal, he may remit the duty payable on suchgoods, subject to such conditions as may be imposed by him by order in writing.

(c) As per Rule 5 of the Central Excise (Appeal) Rules, 2001, only under followingcircumstances the appellant shall be entitled to produce before the Commissioner(Appeals) any evidence, whether oral or documentary, other than the evidence producedby him during the course of proceeding before adjudicating authority:(i) where the adjudicating authority has refused to admit evidence which ought to have

been admitted; or(ii) where the appellant was prevented by sufficient cause from producing the evidence

which was called upon to produce by the adjudicating authority; or


70

(iii) where the applicant was prevented by sufficient cause from producing before theadjudicating authority any evidence which is relevant to any ground of appeal; or

(iv) where the adjudicating authority has made the order appealed against withoutgiving sufficient opportunity to the appellant to adduce evidence relevant to anyground of appeal.

PART BQuestion 6

(a) As per section 15 of the Customs Act, 1962, briefly discuss the date for determining therate of duty and tariff valuation of imported goods. (3 Marks)

(b) Referring to section 25 of the Customs Act, 1962, discuss the following:

(i) General exemption(ii) Special exemption (2×2=4 Marks)

(c) The assessee imported capital goods and deposited them in the warehouse. The saidgoods were not removed from the warehouse within the period permitted under section61(1)(a) i.e. five years. Subsequently, the assessee filed an application forrelinquishment of title of such warehoused goods. The Department contended that sincethe assessee did not file an application for extension of warehousing period before theexpiration of five years’ period fixed under section 61(1)(a), after expiration of the saidperiod, the goods could no longer be termed as ‘warehoused goods’. Therefore, theassessee lost its title to the same and consequently, it lost its right to relinquish its titlethereto. It was further claimed that the relinquishment of title to the said goods ought tohave been made by the assessee before the expiration of the warehousing period andnot thereafter and therefore the goods were ‘deemed to have been improperly removedfrom the warehouse’. Consequently, the assessee became liable to pay duty, penaltyand interest with respect to the said goods as provided under section 72(1)(b) of theCustoms Act, 1962. (5 Marks)

Discuss, whether the contention of the Department is correct, by referring to case law, if any.

(d) K imported some old machinery from London claiming that the machinery was fullyexempted from customs duty under a notification. Assistant Commissioner of Customs,the authority in original, differed and held that the machinery so imported was coveredunder a different heading and attracted customs duty. Therefore, K had to furnish bankguarantee for duty payable for release of machine.

Subsequently, the Assistant Commissioner of Customs ordered to encash the bankguarantee to realize the duty. This order was issued to K and immediately thereafter, theCustoms Department invoked bank guarantee by sending request to bank for makingpayment to them. K contended that order of the Assistant Commissioner was appealableand the period of filing appeal was yet to expire. Hence the action of the Department


71

was not correct. You are required to comment whether the action of customsDepartment is correct in law based on decided case law, if any. (5 Marks)

(e) Whether the right of warehouse-keeper to recover the warehousing charges from the saleproceeds of the goods kept therein is superior to the right of the Revenue to recovercustom duty? Answer briefly, by referring to section 150(2)(b) of the Customs Act, 1962.

(3 Marks)

Answer

(a) Section 15 of the Customs Act 1962 provides that the rate of duty and tariff valuation, ifany, applicable to any imported goods, shall be the rate and valuation in force-(a) in the case of goods entered for home consumption under section 46, on the date

on which a bill of entry in respect of such goods is presented under that section.;(b) in the case of goods cleared from a warehouse under section 68, on the date on

which a bill of entry for home consumption in respect of such goods is presentedunder that section;

(c) in the case of any other goods, on the date of payment of duty(b) (i) Special Exemption : As per section 25 of the Customs Act, 1962:

If the Central Government is satisfied that it is necessary in the public interest so todo, it may, by special order in each case, exempt from payment of duty, any goodson which duty is leviable only under circumstances of an exceptional nature to bestated in such order. Further, no duty shall be collected if the amount of dutyleviable is equal to, or less than, one hundred rupees.

(ii) General Exemption: As per section 25 of the Customs Act, 1962:If the Central Government is satisfied that it is necessary in the public interest so todo, it may, by notification in the Official Gazette, exempt generally either absolutelyor subject to such conditions (to be fulfilled before or after clearance) as may bespecified in the notification, goods of any specified description from the whole orany part of duty of customs leviable thereon.

(c) The facts of the given case are similar to the facts of the case of CCus v i2 TechnologiesSoftware (P) Ltd. 2007 (217) ELT 176 (Kar.)

The High Court, while dismissing the Department’s appeal observed that the owner of thegoods (importer) though loses control over the goods when he deposits them in thewarehouse, but he does not lose his title or ownership to such goods so long as theyremain in the warehouse either during the continuance of the warehousing period or evenafter its expiration. Therefore, the High Court rejected the Department’s contention thaton the expiration of the warehousing period or on the expiration of extended warehousingperiod, the owner of the goods loses his title in respect of such goods and consequently,also loses his right to relinquish his title to such warehoused goods.


72

The High Court elaborated that on a plain reading of the provisions of section 23(2), 47,68 and the proviso to section 68 of the Customs Act, 1962, it is clear that the owner ofwarehoused goods has the right to relinquish his title to goods ‘at any time before anorder for clearance of goods for home consumption has been made in respect thereto’.There is no prohibition on relinquishing the title to such goods after the expiration of thewarehousing period or after the expiration of the extended period. The High Courtpointed out that the provisions of section 23(2) and proviso to section 68 make it clearthat upon relinquishment of his title to any imported goods, including the warehousedgoods, the owner of such goods shall not be liable to pay duty thereon and when theowner is not liable to pay duty, the question of paying any interest on the duty andpenalty would not arise.Therefore, in the instant case, the Department’s contention is not correct.

(d) Bombay High Court, in the case of Ocean Driving Centre Ltd. v. Union of India 2005 (180)E.L.T 313, had an opportunity to address the similar situation. In that case, the petitionercontended that he had a statutory right of appeal before the Appellate Authority and also hehad a right to move an application to get the pre-deposit waived in terms of section 129E ofthe Customs Act, 1962. He further submitted that he had an arguable case on classification.The debatable question had resulted in release of goods subject to furnishing bank guaranteeat the stage of provisional assessment. Had it not been a debatable issue, he would not havebeen allowed to claim release of goods on furnishing the bank guarantee, which wasfurnished to secure the dues of Department. The same was valid and should have been keptalive till the dispute was finally resolved. According to them, the order of assessment was notfinal and conclusive.

The High Court observed that it was not in dispute that the appeal period was yet to expireand that the order was an appealable order as per the Departmental circular no. 396/29/98-C.E dated 2nd June, 1998, the Department was expected not to resort to coercive action solong as the appeal period was not over. Hence, the Departmental action was contrary to theirown policy. According to the High Court, it was not proper on the part of Department toencash the bank guarantee before the expiry of statutory period provided for filing appeal.

Thus, the stand taken by the Department was not tenable in law.

(e) In the case of Associated Container Terminals Ltd. v. Union of India 2008 (226) E.L.T169, Delhi High Court held that as per the words used in section 150(2)(b), the right ofwarehouse keeper to recover the warehousing charges from the sale proceeds appearedto be superior to the right of the Revenue to recover customs duty. The Court noted thefollowing words used in section 150(2)(b):

“-----------and other charges ,if any, payable in respect of goods sold ,to the carrier, ifnotice of such charges has been given to the person having custody of the goods”.


73

High Court observed that these words make it clear that it does not pertain to customduty and refers to the payment of warehousing charges. So, it takes precedence overrecovery of custom duty which is relatable to section 150(2)(e) of the Customs Act, 1962.

Question 7

(a) Compute the assessable value and customs duty payable from the following information:

(i) F.O.B. value of machine 8,000 UK Pounds(ii) Freight paid (air) 2,500 UK Pounds(iii) Design and development charges paid in UK 500 UK Pounds(iv) Commission payable to local agent @ 2% of

F.O.B., in Indian Rupees(v) Date of bill of entry 24.10.2007 (Rate BCD

20%; Exchange rate asnotified by CBEC Rs.68 perUK Pound)

(vi) Date of entry inward 20.10.2007 (Rate of BCD18%; Exchange rate asnotified by CBEC Rs.70 percent UK Pound)

(vii) C.V.D. is payable @ 16% plus education cess as applicable(viii) Special C.V.D. – as applicable(ix) Insurance charges have been actually paid but details are not available.

(6 Marks)

(b) What is ‘redemption fine’ in lieu of confiscation? What is the limit for imposingredemption fine under section 125(1) of the Customs Act, 1962? (4 Marks)

(c) Briefly explain the provisions of section 28BA of the Customs Act, 1962 regardingprovisional attachment of property pending adjudication. (5 Marks)

Answer7 (a) Computation of assessable value and duty thereon:

FOB value 8,000 UK poundsAdd: Design and development charges 500 UK poundsAdd: Freight (air) (Note-3) 1,600 UK poundsAdd: Insurance 1.125% of FOB (Note-4) 90 UK poundsTotal 10,190Total in Rupees @ Rs. 68 per pound (Note-1) Rs. 6,92,920Add: Local agency commission


74

(2% of 8000 UK pounds)= 160 UK pounds × Rs. 68 Rs. 10,880C.I.F value Rs. 7,03,800Add: Landing charges @1%of CIF value Rs. 7,038Assessable value Rs. 7,10,838Add: Basic custom duty @ 20% (Note-2) Rs. 1,42,167.60Total Rs. 8,53,005.60Add: CVD @16.48% Rs. 1,40,575.32Add: Education cess (3% of custom duty)= 3% of (Rs. 1,42,167.60+ Rs. 1,40,575.32)=Rs. 2,82,742.92 Rs. 8,482.28Total for Special CVDSpecial CVD @4%

Rs. 10,02,063.20Rs. 40,082.53

Total duty payable: Rs. 1,42,167.60

Rs. 1,40,575.32

Rs. 8,482.28

Rs. 40,082.53

Rs. 3,31,307.73

or Rs. 3,31,308Notes:1. Exchange rate =Rs. 68 per UK pound (date of presentation of bill of entry)2. Section 15 of the Customs Act, 1962 provides that rate of duty shall be :-

the rate in force on the date of presentation of bill of entryor

the rate in force on the date of entry inwardwhichever is later.

3. The air freight should not exceed 20% of FOB value.4. Where the insurance charges are not ascertainable, such cost shall be 1.125%

of FOB value of the goods.(b) Redemption fine in lieu of confiscation:

Section 125 (1) of the Custom Act, 1962 provides that whenever confiscation of goods isordered, the adjudicating officer may give option to the owner of the goods to pay fine inlieu of confiscation, if the importation or exportation of goods are prohibited under the Actor any other law for the time being in force.


75

However, if importation or exportation of goods was not prohibited, the option to payredemption fine shall be given to owner of the goods. This is called ‘redemption fine’.After payment of redemption fine, the goods are returned to the owner of goods. Section125(2) of the Custom Act makes it clear that where any fine in lieu of confiscation ofgoods is imposed, the owner of goods or the person from whom the goods were seized,is liable to pay duty and charges in respect of such goods, in addition to the fine.

Limit for imposing the redemption fine

As per proviso to section 125(1) of the Customs Act, 1962, redemption fine up to marketprice of goods less duty chargeable thereon can be imposed. In addition, duty and othercharges in respect of such goods are also payable.

(c) Section 28BA of the Customs Act, 1962 provides for provisional attachment of propertypending adjudication as under:(1) During the pendency of any proceeding under section 28 or 28B, the proper officer

may provisionally attach any property belonging to the person to whom notice isserved under section 28(1) or 28(B)(2), as the case may be, in accordance with therules made under section 142 in this respect.

(2) When proper officer is of the opinion that the attachment is necessary for thepurpose of protecting revenue interest, only then he can do so but before that thepermission in writing from the Commissioner of Customs must be obtained.

(3) Such an attachment can be done for a period of six months from the date of order ofCommissioner of Customs permitting for such an attachment.

(4) The period may be extended by Chief Commissioner of Customs for a further periodor periods as he may deem fit. The reasons of such an extension shall be recordedin writing. The total period of extension in any case shall not exceed two years.

(5) If an application for settlement of a case is made to the Settlement Commission,period from the date of making the application to the date of an order passed by theCommission under section 127C(1) shall be excluded from the extended periodmentioned in point (4) above.

Question 8

(a) If any duty demanded or drawback paid is recoverable from a person, what is theprocedure envisaged under section 142 of the Customs Act, 1962? (5 Marks)

(b) Briefly discuss the provisions in relation to interest on drawback as per section 75A of theCustoms Act, 1962. (3 Marks)

(c) What is the time-limit provided for issuance of show-cause notice in section 28 of theCustoms Act, 1962? (4 Marks)

(d) What are the orders of Commissioner (Appeals) not appealable to Appellate Tribunal asper section 129A of the Customs Act, 1962? (3 Marks)


76

Answer

(a) Section 142 of the Customs Act provides following procedure for recovery of dutydemanded or drawback paid:a. Deducting from any amount payable by any Customs Officer to such person.b. Detaining and selling goods belonging to such person, which are under control of

customs authorities;c. Issuing a certificate to District Collector in whose district any property of the person

is situated or where he carries on business.d. Distraining and detaining any property belonging to the person and selling the

same.e. Recovering from successor by attaching goods, materials, machinery, plant etc.

transferred to successor in trade or business.f. Enforcing a bond executed under the Act.

(b) Payment of interest on delayed payment of drawback

As per section 75A, where any drawback payable to a claimant under section 74 or 75 isnot paid within a period of one month from the date of filing a claim for payment of suchdrawback, there shall be paid to the claimant, in addition to the amount of drawback,interest at the rate fixed under section 27A form the date after the expiry of the saidperiod of one month till the date of payment of such drawback.

Further, if any drawback has been paid erroneously to claimant or it becomes otherwiserecoverable, the claimant shall within a period of 2 months from the date of demand, pay inaddition to the said amount of drawback, interest at the rate fixed under section 28AB of theCustoms Act, 1962.

(c) As per section 28, the time limit for issuance of show cause notice is as under:(i) In the case of import made by an individual for his personal use or by the

Government or by any educational, research or charitable institution or hospital-within one year from the relevant date;

(ii) In any other case -within six months from the relevant date.Where any duty has not been levied or has been short levied or interest has not beencharged or has been partly paid or the duty or interest has been erroneously refunded byreason of collusion or any wilful mis-statement or suppression of facts by the importer orthe exporter or the agent or employee of the importer or exporter, the time period shall beextended to five years.

Where the service of the notice is stayed by an order of Court, the period of such stayshall be excluded in computing the aforesaid period of six months or one year or fiveyears as the case may be.


77

(d) No appeal shall lie to the Appellate Tribunal and the Appellate Tribunal shall have nojurisdiction to decide any appeal in respect of any order passed by the Commissioner ofAppeals under section 129A, if such order relates to:(i) any goods imported or exported as baggage;(ii) any goods loaded in conveyance for importation into India, but which are not

unloaded at their place of destination in India, or so much of the quantity of suchgoods as has not been unloaded at any such destination, if goods unloaded at suchdestination are short of the quantity required to be unloaded at that destination.

(iii) payment of drawback as provided in Chapter X and the rules made there under.

PART C

Question 9(a) State with reason whether service tax liability arises in the following cases:

(i) Services provided by ‘angadia’ in undertaking delivery of documents or goodsreceived from a customer to another person for a consideration.

(ii) Commission received by distributors for distribution of mutual fund units.(iii) Consultancy services in the field of computer software engineering by consulting

engineer. (3×2=6 Marks)(b) (i) What is the exemption provided to practicing Chartered Accountants under

Notification No.25/2006 ST dated 13.7.2006 ? (2 Marks)(ii) Define the term ‘gross amount charged’ as per explanation (c) to section 67 of

Finance Act, 1994, as amended, with reference to associated enterprises. (3 Marks)(iii) M, an assessee fails to pay service tax of Rs.15 lakhs payable by 5 th January. He

pays the amount on 16th January. What is the penalty payable by M? (4 Marks)Answer(a) (i) Yes, the services provided by ‘Angadia’ will be covered under courier agency

services. The Circular No. 96/7/2007 ST dated 23.08.2007 clarifies that angadiasare covered within the definition of ‘courier agency’ [section 65(33) of the FinanceAct, 1994 as amended]. Therefore, such services provided by angadia is liable toservice tax under courier agency service.

(ii) Yes, the services provided by distributors for distribution of mutual funds units areliable to service tax under business auxiliary service. The Circular No. 96/7/2007 STdated 23.08.2007 clarifies that distributors receive commission from mutual fund forproviding services relating to purchase and sale of mutual fund units. Servicesprovided by such distributors are in the nature of commission agent and are, thus,liable to service tax under business auxiliary service [section 65(105)(zzb)].

(iii) Yes, as per the Finance Act, 1994 as amended by Finance Act, 2008, “consultingservices in the field of computer software engineering” have been included within


78

the scope of taxable services provided by a ‘consulting engineer’. Hence, theconsultancy services provided in the field of computer software engineering byconsulting engineer shall be liable to service tax.

(b) (i) As per Notification No.25/2006 ST dated 13.07.2006, the taxable service providedor to be provided by a practising Chartered Accountant in his professional capacityto a client, relating to representing the client before any statutory authority in thecourse of proceedings initiated under any law for the time being in force, by way ofissue of notice, is exempt from the whole of service tax leviable thereon.

(ii) With effective from 10.05.2008, the definition of gross amount charged has beenamended; now it reads as under:Gross amount charged includes payment by cheque, credit card, deduction fromaccount and any form of payment by issue of credit notes or debit notes and bookadjustment, and any amount credited or debited, as the case may be, to anyaccount, whether called “suspense account” or by any other name, in the books ofaccount of a person liable to pay service tax, where the transaction of taxableservice is with any associated enterprise.Here, associated enterprise has the meaning assigned to it in section 92A of theIncome tax Act, 1961.

(iii) Penalty payable is:(a) 2% of the amount of default per month

In this case, delay is of 11 days. Therefore,Amount = 2% of (15,00,000 ×11/31)=Rs10,645

or(b) Penalty @Rs. 200 per day of default

= Rs.200 per day × 11= Rs 2,200whichever is higherThus, penalty payable is Rs 10,645.

C:\Fakepath\17262final Old Sugg Paper June09 8

Documents

Transcript of C:\Fakepath\17262final Old Sugg Paper June09 8